Summary of a Recent
Judicial
Development in
Finance & Credit
Six-Year Statute of Limitations for Claims Against the Federal Government
Walt McCarterNational AgLaw Center Research Associate
Summary of Decision
In Franconia Associates v. U.S., 536 U.S. 129 (U.S. 2002), the United States Supreme Court held that the statute of limitations for a claim against the government had not expired, because the action first accrued at the time of the government's nonperformance and not at the time that Congress enacted the Emergency Low Income Housing Preservation Act of 1987 which ultimately led to the government's breach of contract.
Background
Pursuant to the Housing Act of 1949, the Farmers Home Administration (FmHA) made direct loans to private parties to develop rural housing for low- or middle-income families. Id. at 129. The petitioners obtained such loans, and their promissory note authorized prepayment of any amount of the debt at any time at the option of the borrower. Id. Congress subsequently enacted the Emergency Low Income Housing Preservation Act of 1987 (ELIHPA) which imposed permanent restrictions upon prepayment of mortgages such as those held by the petitioners. Id. The petitioners brought suit against the government but their claims were dismissed as untimely since 28 U.S.C. § 2501 requires claims against the federal government to be brought within six years after the claim first accrues. Id. The lower court held that their claims first accrued when ELIHPA was enacted, not when their offered prepayment was refused, and thus dismissed the claims, and the petitioners appealed. Id.
Arguments
The petitioners argued that ELIHPA abridged the absolute prepayment right set forth in their promissory notes and constituted a repudiation of their contracts, and the action first accrued on the date they tendered prepayment, not when ELIHPA was enacted. Id.
The government argued that § 2501's "first accrues" qualification was meant to ensure that suits against the United States are filed on the earliest possible date, thereby providing the government with reasonably prompt notice of the fiscal implications of past enactments. Id. at 131.
Analysis and Holdings
The Supreme Court held that the six-year limitations period began to accrue when the borrowers tendered prepayment and the government refused to accept the payment and release its control over use of the property securing the loan because ELIHPA's enactment qualified as a repudiation of the parties' bargain, not a present breach of the loan agreements. Id. at 130. Therefore the petitioners' claims were not barred by the six-year limitations period, and the Court remanded their cases for further proceedings. Id. at 149.
The case was decided on June 10, 2002.